R. Allen Stanford used to tell prospective investors in the U.S. that he could pay higher interest rates because his Caribbean bank was free of expensive U.S. banking regulations.

Investors outside the U.S. got a different pitch: Put your money with us and enjoy all the protections of a U.S. financial institution.

Neither, of course, was true.

Federal authorities now claim that the interest rates were a sham, part of a massive $7 billion Ponzi scheme. Stanford, who has denied wrongdoing and is awaiting trial this fall, didn't have any U.S. financial institutions, either, but he did have a unique state-chartered trust company in Texas that could have given regulators insight into Stanford's activities had anyone bothered to look.

Members of Congress recently held hearings into the regulatory failures that allowed Stanford's alleged scheme to flourish for so long. But the scrutiny of federal regulators has overlooked questions of how Texas regulators also missed signs that something was amiss with Stanford.

Some of the earliest red flags about Stanford came from the Texas Department of Banking. In 1991, the department moved to shut down the Houston and El Paso offices of Stanford's Guardian International Bank. In a letter to Stanford's father, James, who was Guardian's chairman, the department threatened to file charges for violating the state's banking code because Guardian's Texas offices kept operating even after authorities in the British territory of Montserrat, where Guardian was based, revoked the bank's charter.

In 2000, Stanford approached the banking commission again, this time to set up a state-chartered trust company.

In granting approval, the commission also established a unique agreement by which Texas and Antiguan regulators would share information about Stanford's operations.

"Our goal is coordinated, comprehensive supervision," then-banking commissioner Randall James said in a news release at the time.

A year earlier, the U.S. Treasury Department had issued an advisory to U.S. banks urging them to scrutinize any transactions involving Antigua because the island nation had become a money-laundering haven.

Questions on cooperation

Indeed, by then the FBI and Great Britain's Scotland Yard had begun investigating Stanford's Caribbean activities, according to British newspaper reports.

That same year, Texas securities regulators forwarded concerns about possible money laundering by Stanford International to the FBI and the Securities and Exchange Commission, former Texas Securities Commissioner Denise Voigt-Crawford later testified. No action was ever taken.

Stanford had a similar trust operation in Miami, but it lacked the information-sharing agreement that the Texas charter had.

As the Stanford case has unfolded during the past two years, investigators have complained about a lack of cooperation from Antiguan authorities. The court-appointed receiver in Dallas even squared off in court with his Antiguan counterpart over who has the authority to recover funds for investors.

It's not clear if Texas banking regulators ever actually received information from Antigua.

A lawyer for the commission confirmed the agreement, but asked that I file a public records request for any details on what may have been exchanged.

I'll let you know what I get back in a later column.

Accuracy at issue

Another lawyer involved in the case told me that even if information was shared, it may not have been accurate.

Little of the financial information Stanford disclosed ever was, and Stanford allegedly managed to bamboozle regulators in the U.S. and Antigua for years.

The trust arrangement, though, was designed to prevent exactly that sort of deception.

It was supposed to allow Texas regulators to see inside Stanford's Caribbean operations. Instead, it was just another safeguard that failed to protect investors.